China Securities Co., Ltd. reviews the A-share market in the first quarter of 2026: This bull market is more forward-looking in terms of regulation and will take timely measures to address overheated trading.

China Securities Co., Ltd. released a research report stating that in the first quarter of 2026, the market was heavily impacted by both domestic and external factors, leading to large market fluctuations, rapid iteration of hotspots, and quick style switches. Overall, investors' risk preferences have slightly declined. At the beginning of January, the New Year's market rally continued, with the market focusing on commercial aerospace as the leading theme for investment. In the middle and later part of the month, tensions in overseas geopolitics intensified, leading to a shift in market style towards inflationary cycles. At the end of the month, global precious metals saw a sharp decline in prices due to disturbances in overseas liquidity. After the Chinese New Year holiday in February, capital inflows helped stabilize the domestic market, with hotspots focusing on the energy sector. Towards the end of the month, tensions between the US and Iran escalated, putting pressure on global stock markets. In March, the A-share market also suffered from the impact, experiencing a significant drop and a sufficient adjustment. The market mainly revolved around the oil chain, new energy, economic expansion sectors, and defensive sectors. Overseas, geopolitical conflicts intensified, leading to a sudden drop in overseas liquidity and market risk preferences. Through a review of the market trends in Q1 2026, the following insights were gained: 1) the AI computing power market shifted from being led by capital expenditures to being led by the up- and downstream inflationary chain; 2) In this bull market, regulations are more forward-looking and will take timely measures to address overheated trading. Key points from China Securities Co., Ltd.: The Q1 market trends can be roughly divided into the following 4 stages: 1) Stage One (1.5-1.13): The New Year market rally continued, with the index maintaining a unilateral upward trend, reaching a 10-year high. Due to concentrated satellite funds positioning in the commercial aerospace sector and multiple positive news in the AI field, the market was led by thematic investments such as commercial aerospace and AI, with high trading volumes in these sectors. 2) Stage Two (1.14-1.30): The market style shifted, with a decline in thematic investments and the rise of the inflationary chain. Regulatory measures were implemented to curb the previous overheating, leading to a large sell-off in broad-based ETFs. Escalating overseas geopolitical conflicts boosted precious metal prices. During this period, the market adjustment focused on hotspots such as precious metals, minor metals, and the energy sector, shifting from a growth style to an inflationary cycle style. 3) Stage Three (1.31-2.28): The market stabilized and rose independently after the Chinese New Year holiday. Incremental funds entered the market, driving the recovery of previously adjusted sectors. Overseas, the nomination of Powell as Chairman of the Federal Reserve led to a sharp drop in precious metal prices; the release of AI tools impacted global software stocks, triggering "HALO trading", with overall risk aversion persisting overseas. 4) Stage Four (3.1-3.31): The outbreak of US-Iran conflicts led to a standoff, causing seismic fluctuations in oil prices and impacting global stock markets. Domestically, market volatility was influenced by overseas events, leading to significant capital outflows from small-cap stocks and a substantial market decline with ample adjustment. Hotspots mainly focused on the oil chain, new energy, economic expansion sectors, and sectors benefiting from high inflation, with funds showing a trend of moving from high to low. Through a review of the market trends in Q1 2026, the following insights were gained: 1) The AI computing power market shifted from being led by capital expenditures to being driven by the up- and downstream inflationary chain; 2) In this bull market, regulations are more forward-looking and will take timely measures to address overheated trading. Risk warning: 1) The effect of domestic support policies may be lower than expected. If subsequent data on domestic real estate sales, investments, etc., fail to recover, inflation remains low, and there is no significant boost in consumption, leading to a continued decline in corporate profit growth, the economic recovery may ultimately prove false, putting pressure on the overall market trend and causing adjustments to overly optimistic pricing expectations. 2) Escalation of risks in US-China strategic competition. Beware of the risks of the US-China strategic competition spreading and intensifying. For example, if strategic competition extends from trade to technology, key resources, finance, shipping, logistics, and military fields, leading to comprehensive strategic conflicts, this could impact normal economic activities and have repercussions on equity markets. 3) Excessive volatility in the US stock market. If the US economy deteriorates more than expected, or if the Federal Reserve's easing measures are less than expected, it could lead to significant fluctuations in the US stock market, thereby affecting the sentiment and risk preferences in the domestic market.